The Pursuit of Truthiness

It’s not easy to find the truth. Even when you do research by looking for unbiased views to form a clearer perspective, the information available, although vast, can be based on conflicting analysis, points of view and political influence.

The other day someone mentioned to me as we talked about the financial situation in America, “Corporate taxes in America are the highest in the world.” I was a little puzzled because I had read recently that “Corporate Welfare” (the tax breaks afforded mega-corporations) totaled over 100 billion dollars annually.

I didn’t confront the contradiction on the spot and decided to look into the matter. But, this is where the challenge began…

I actually enjoy doing research and I am skeptical by nature of talking points and zealots on either side of the political fence; I was raised to look for the contradictions that can exist. I started Googling various phrases.

What do American corporations pay in taxes? – What do corporations really pay? – What is corporate welfare? – Why do corporations pay 35% in taxes?

Most of what I found played into my preconceived notion that mega-corporations (GE, Exxon, Carnival Cruise Lines) pay a pittance because of loopholes and breaks and nowhere near the percentage of 35% (less, most said, than what you or I pay).

One mistake is that many critics assume that what a company “makes” is their profit, when of course, it isn’t and it is the net earnings that are taxed. The author of the article, Steven Malanga, writes, “The impression one gets from corporate critics is that many are prospering by exploiting loopholes in the tax code and leaving the rest of us to pick up the tab. But that criticism is based on the mistaken notion that in robust years, such as 2005, virtually all businesses do well. Nothing could be further from the truth.”

American businesses produced 31 million new jobs in 2005 because 1.5 million firms every quarter were expanding and another 370,000 new businesses were starting up. “On the other hand,” Malanga writes of contraction even in a growing economy, “Firms also eliminated nearly 29 million jobs…and another 325,000 going out of business.”

He concludes with a compelling statement: “Taxes on corporate profits that year increased 34 percent…Growing firms, you see, do pay more in taxes. Just don’t imagine that every business is growing whenever the American economy is.”

I wasn’t about to rest, however, thinking that I had found the only answer to the Corporate Tax Equation. I searched on…

Edward Kleinbard, an economics professor from USC (who headed a Congressional joint committee on taxes) writes, “The paradox of the United States tax code — high rates with a bounty of subsidies, shelters and special breaks — has made American multinationals ‘world leaders in tax avoidance.’”

And David Kocieniewski of the NY Times points out that by taking advantage of the myriad of tax breaks and loopholes that other countries do not offer, US corporations pay only slightly more (on average) than other industrial countries, and often far less. The United States is virtually alone in trying to tax its multinational corporations on their foreign earnings, but it allows companies to avoid those taxes indefinitely by keeping profits overseas. That encourages companies to use accounting maneuvers to shift profits to low-tax countries and to invest profits offshore. Some business owners complain that our system unfairly rewards shady bookkeeping more than innovation.

Liberal groups I found suggest that by ending the tax breaks, loopholes, subsidies and shelters afforded to corporations, we would create enough revenue to lower the tax rate significantly. The irony is (much like the Buffett Rule toward our individual progressive tax system) that corporations will be paying the same, but we can all say that we “lowered taxes.”

Companies compete “based not on product quality and services, but on accounting gymnastics,” said Paul Egerman, former chairman and chief executive of eScription, a medical transcription service in Boston.

Finally, Clint Stretch, a former counsel to the Congressional Joint Committee on Taxation summed it up thusly, “The only way tax reform makes everyone happy is if everyone wins. And with the federal budget where it is today, that’s not possible.”

So…what have I learned? Would it be okay if I answered, “Very little”? Things are, as I suspected, according to which perspective you take. Either, A) Corporations need to be incentivized because tax breaks and lower rates enhance growth and that creates jobs or B) Corporations are not expanding commensurate to the windfall of shelters, subsidies and breaks that they are getting, therefore, eliminating “corporate welfare” will balance the burden and budget.

Stalemate? Not exactly. The person that initiated my inquiry also mentioned the huge national debt and was quick to point out that “Obama is mostly responsible for it.” I sent him a Congressional Budget Office chart of spending under the last two Presidents outlining the costs (and projected costs through 2017) of new policies initiated (including Iraq and Afghanistan) by Bush and Obama. President Bush outpaces Obama over 5 trillion to just under 1.5 trillion.

He replied, “Interesting information. I didn’t look at it that way before.”

I’m not so naïve as to think that he is going to suddenly register as a Democrat, or even change his anti-Obama opinion, but it illustrates how little actual information can determine our opinions and that just a little bit of research, can shed a glimmer of truthiness onto pre-conceived ideas…and maybe influence them…a little.

Now…let’s look at some other statistics. Is Joe Flacco really worth ten times the annual budget of Zimbabwe?